Examining anti-money laundering controls and the role of regulatory authorities.

Despite stringent anti-money laundering (AML) policies and procedures, an estimated USD $2 trillion of illicit money still makes its way into the global financial system each year, raising concerns about the effectiveness of AML controls and frameworks.

The recent case involving Toronto-Dominion Bank (TD), one of Canada’s largest, underscores the persistent challenge faced by regulatory bodies and financial institutions in combating these illicit financial activities.

TD being investigated for money laundering.

TD is currently being investigated by the US Department of Justice (DoJ) for its alleged involvement in a money laundering case involving at least USD $653 million. TD was implicated in the case after the US Drug Enforcement Agency (DEA) conducted surveillance on suspicious bank deposits made by the primary defendant in a drug-trafficking operation.

Several deposits of illicit funds linked to US fentanyl sales were made to various TD branches in the US. The lead defendant and five others were later charged in 2021 for money laundering and drug trafficking that took place from 2016 to 2021.

TD has set aside USD $450 million for anticipated penalties from the ongoing DoJ and regulatory investigations. The full brunt of related monetary and non-monetary penalties is still unknown at this time. Analysts estimate that TD’s fines could range from USD $500 million to USD $1 billion with others estimating higher fines around USD $2 billion.


FinTRAC assessment.

Additionally, in 2023, Canada’s Financial Transactions and Reports Analysis Centre (FinTRAC), conducted a thorough assessment of TD’s AML controls as part of its routine examination of Canada’s financial institutions. FinTRAC identified several major weaknesses and fined TD CAD $9.2 million in 2024 which was the largest administrative fine ever imposed by FinTRAC to Canada’s big banks.

FinTRAC reported several violations, such as failing to submit multiple Suspicious Transaction Reports (STRs) and failing to document instances of money laundering and terrorist activity financing risk. FinTRAC also stated the bank failed to prescribe the necessary measures for a number of high-risk customers (such as obtaining source of funds and other mandatory information).


Other Canadian banks fined.

TD, however, was not the only bank requiring AML improvements. In 2023, FinTRAC fined the Canadian Imperial Bank of Commerce (CIBC) CAD $1.3 million and the Royal Bank of Canada (RBC) CAD $7.4 million for administrative violations and gaps in AML controls. FinTRAC’s reviews highlight the critical role regulatory bodies play in strengthening AML practices.


Global financial sector impacted by inadequate AML systems.

A cursory examination of recent history reveals numerous instances of illicit activities and inadequate AML systems within the global financial sector. In 2023, the Deutsche Bank was fined USD $186 million for failing to address faulty money laundering controls and the list goes on. A particularly egregious case occurred in 2012 when the Hongkong and Shanghai Banking Corporation (HSBC) was fined USD $1.9 billion to avoid criminal prosecution for allowing at least USD $881 million to flow through the bank from drug cartels, and terrorist activities for more than a decade.

HSBC was also found to be knowingly conducting major transactions with sanctioned countries. Former compliance officers from HSBC have complained about not having enough time to investigate suspicious transactions and lacking the power to make any meaningful decisions. HSBC received a deferred prosecution agreement which entailed a fine and five years of monitoring overseen by the US DoJ—a move that has been heavily criticized in some quarters.


Calls for overhaul of AML controls.

The allegations against TD, coupled with the findings of FinTRAC and the other examples, may point to systemic weaknesses in AML controls and oversight. While it’s still too early to determine how the ongoing investigation will impact TD, the bank’s executive is already facing strong calls for an overhaul.

On the compliance front, TD’s CEO, Bharat Masrani, stated the bank has already invested CAD $500 million to upgrade its AML program and plans to do more in the months and weeks ahead.

TD’s response to the investigation appears to signal a commitment to address deficiencies and strengthen compliance measures. However, the effectiveness of these efforts remains to be seen.

Ultimately, the TD case serves as a reminder of the ongoing challenges in combating financial crime, the imperative for continuous improvement in AML practices across the banking industry, and the need for collaboration between regulatory authorities and financial institutions.